Image source @ Visual China
Wen 丨 odd and even faction, author 丨 non-verbal, editor 丨 Zhao
Since the beginning of this year, AI companies have begun to launch sprints to the secondary market.
Although it is already the depth of winter, the AI market still seems to be hot.
At the beginning of January, the popularity of SenseTime Technology, the big brother of the "FOUR LITTLE DRAGONs of AI", has not subsided after its listing, and the innovative Qizhi, which is known as the first stock of "AI +Manufacturing", has come again.
Although it belongs to the same track, innovative Qizhi is not only less famous than SenseTime, but also robbed of the listing opportunity.
Then, under the eye-catching performance of SenseTime, how will the follow-up market performance of innovative Qizhi in the layout of differentiated segments be analyzed by the following three questions:
1. Why doesn't Innovative Qizhi have a hot spot in the meta-universe?
2. What kind of company is behind the gorgeous data of innovative Qizhi?
3. What are the advantages of Innovative Qizhi compared to SenseTime?
Don't want the future metaverse, just the reality of Kai-Fu Lee?
To say what are the hottest concepts in the capital market this year, it is certainly indispensable to the metacosm. Food, clothing, shelter, food, drink, and fun, regardless of relevance or inconsistency, are all "meta-cosmic" and then said, just like a scene in which everything can meta-universe.
As one of the basic technologies of the metaverse, AI is certainly not much to let go.
AI, which was once popular in the market, has been trapped in technology in recent years and has been unable to find large-scale application scenarios, and has gradually been snubbed by capital. But with the explosion of the concept of metaversm, the scenes depicted in the metacosm have brought ai a huge imagination space.
Ai companies, of course, chose to hit the iron while it was hot and turned to the meta-universe, and some of them also ushered in a highlight moment of development.
SenseTime, known as the first ai stock in China, has created a capital feast of doubling its stock price in only 4 days after being listed with the blessing of Meta-Universe. Although there has been a pullback so far, it has also risen by 80% compared to the issue price, and the market's enthusiasm for AI stocks seems to be very high.
Following the unicorn of SenseTime, the innovative Qizhi, which is also an AI company, also submitted a prospectus to open the road to Listing in Hong Kong.
Unlike SenseTime, which mentioned the metaverse as many as 47 times in the prospectus, Innovative Qizhi did not mention anything about the metacosm. In fact, Innovative Qizhi took the initiative to give up the meta-universe aura blessing, just because there is an "artificial intelligence forerunner" who has to be mentioned when mentioning Innovative Qizhi, that is, Kai-Fu Lee.
Innovation Qizhi is an artificial intelligence company incubated by Kai-Fu Lee's Innovative Workplace, and Kai-Fu Lee also serves as the chairman of the board. The company, which primarily provides full-stack AI products and solutions to the enterprise AI solutions market, has become a unicorn company valued at more than $1 billion before its IPO.
As a senior artificial intelligence scientist, Kai-Fu Lee has been engaged in artificial intelligence research and observation for a long time, and has a lot of experience in the artificial intelligence industry, so he is also known as the "forerunner of artificial intelligence".
In September 2009, Kai-Fu Lee left Google to start Innovation Factory and serve as chairman and CEO. In 12 years, Innovation Factory has bet on more than 400 projects, involving the upstream and downstream of the entire AI industry, and invested in more than 20 unicorn companies with a valuation of more than $1 billion, with remarkable results.
In addition to the upcoming innovation Qizhi, Innovation Factory has also invested in AI unicorns such as Megvii and The Fourth Paradigm.
It is precisely with the accumulation of rich AI industry resources that at the beginning of the establishment of Innovative Qizhi, Kai-Fu Lee said that he would achieve the goal of listing in three years.
Today, Innovation Qizhi is about to complete the listing before the Lunar New Year, and in just three years, it has realized the process from inception to listing, which has a great relationship with the backing of the innovation workshop and Kai-Fu Lee.
Perhaps this is also the basis for innovative wisdom in the universe where everything can be meta-universe, but only does not rub hot spots.
So, what is the color of the innovative qizhi that followed the "meta-universe company" SenseTime, which was recently listed, and carried Kai-Fu Lee's aura?
The dry reality behind the sexiness
1. Revenue multiple growth, growth slowed down
Nowadays, the digital economy has become a long-term policy orientation in the mainland, and the market size of Ai in China is beyond doubt. According to Frost & Sullivan data, the size of the Chinese intelligent market reached 185.8 billion yuan in 2020, accounting for 12.2% of the global artificial intelligence market, and is expected to reach 1,045.7 billion yuan by 2025, accounting for 20.9% of the global artificial intelligence market.
The enterprise-level AI market for Innovation Qizhi is also a 100-billion-level market, and the market size of China's enterprise-level AI market in 2020 is about 139.4 billion yuan, and it is expected to reach about 836.6 billion yuan by 2025, with a compound annual growth rate of 43.1%.
Figure/Prospectus
If you break down further, in terms of revenue by industry vertical, as of September 30, 2021, the combined proportion of manufacturing and finance has reached 85%. This means that AI+ manufacturing and AI+ finance are the main sources of income for Innovation Qizhi.
As the world's factory, China has the world's largest, most complete categories and the most complete industrial supporting manufacturing system, and "Made in China" accounts for more than 35% of the world.
With the introduction of a number of government policies and the strong demand from financial institutions for more digital and intelligent infrastructure, It infrastructure construction expenditure in China's financial services industry is growing steadily.
The manufacturing and financial industries are undoubtedly very promising subdivisions.
According to Frost & Sullivan data, the market size of Artificial Intelligence Solutions for China's manufacturing industry has reached about 9.1 billion yuan in 2020, and it is expected to reach about 64.9 billion yuan in 2025, with a compound annual growth rate of 48.3%. The total IT expenditure of financial institutions in 2020 was 189.7 billion yuan, and it is expected to reach 371.5 billion yuan in 2025, with a compound annual growth rate of 14.4%.
Therefore, no matter from which market dimension, there is a blue ocean ahead. Also officially driven by the rapid growth of the market, innovation Qizhi's revenue has doubled in the past few years.
Revenue from 2018 to the first three quarters of 2021 was RMB0.37 billion, RMB229 million, RMB462 million and RMB553 million, respectively. However, in addition to the manufacturing industry, the growth rate, including the growth of total revenue, has shown a slowdown.
2. In the leading market segment, but the market is fragmented and the competition is fierce
According to the competitive landscape described in the prospectus, as of December 31, 2020, Chuangxin Qizhi ranked third among AI technology-driven solution providers in China's enterprise-level ARTIFICIAL solution market by revenue, and the number one was SenseTime.
Among the AI technology-driven solution providers in China's manufacturing AI solution market, it ranks first in terms of revenue.
If you look at the rankings, Innovation Qizhi is indeed in the leading position in the subdivision field, but from the perspective of specific market share, whether it is 1% of SenseTime or 2.1% of Innovative Qizhi, it has not opened up the gap with other companies, and the market pattern is more dispersed.
The lack of scale advantage in the FIELD of AI segmentation means that the scale and type of data will be limited, which in turn will lead to insufficient training of algorithms.
The main reason for the market dispersion is the fierce competition environment of the AI market, in the track where innovation Qizhi is located, there are not only AI four small tigers, but also heavyweight giants similar to Huawei and BAT, in addition, there are giants from Hikvision, Dahua shares, iFLYTEK and other market segments, which can be described as embattled.
Another reason relates to the way companies participate in the market, which will be mentioned below.
3. Performance depends on system integrators, and the upstream and downstream bargaining power is insufficient
Citing Frost & Sullivan in its prospectus, It is the industry norm for end users to hire system integrators to implement their projects, and that system integrators procure hardware and software solutions from companies like ours and implement integration solutions for end users in a unified standard.
According to the prospectus data, the revenue of Innovative Qizhi's sales to system integrators was 0.05 billion yuan, 136 million yuan, 351 million yuan and 407 million yuan from 2018 to the first three quarters of 2021, accounting for 15.3%, 59.5%, 76.0% and 73.6% of the total revenue of each period.
In fact, Innovation Qizhi participates in the market as a subcontractor of system integrators, and the main performance also relies heavily on system integrators. The fierce competition in the AI industry has formed an N-to-1 pattern with system integrators, and the homogenization of AI technology will lead to easy replacement by other companies.
This can be seen in the case of receivables. As can be seen from the breakdown of receivables, the proportion of higher quality receivables is extremely low, mainly accounts receivable.
In addition, receivables turnover days continued to rise, from 76 days to 137 days. The increase in the number of days of receivables turnover means that the funds are occupied by downstream companies for a longer time, which is a manifestation of the company's weak bargaining power in upstream and downstream.
Downstream system integrators have more dominance and more choices, which may also be another reason why the AI market pattern is more fragmented.
For AI companies, there will be potential competition from other subcontractors who also act as system integrators. If the company's competitiveness in the industrial chain is insufficient, then this market participation method that relies on system integrators will make the company's revenue unstable.
4, customer instability, lack of growth
In terms of customers, Innovation Qizhi also has a common problem in the AI industry: high revenue concentration, instability, and slow growth.
In 2018, 2019, 2020 and the nine months ended 30 September 2021, Nova Intelligence's revenue from the five largest customers accounted for 38.8%, 29.3%, 42.1% and 44.3% of the total revenue, respectively.
What is more noteworthy than the high revenue concentration is that the top five customers are different every year. Frequent changes in customers can make the company's revenue less continuous and more like a project-based company.
Although the total number of customers served in the prospectus was emphasized to reach 400, in fact, the number of customers in the past two years was 150 and 157 respectively, with almost no growth. Therefore, the growth of revenue is mainly driven by the increase in the unit price of customers.
According to the prospectus, in 2020, the average revenue per customer in the manufacturing and financial sectors increased by 61.5% and 209.1% year-on-year, respectively. But this growth method is obviously unsustainable, and the growth bottleneck is very obvious.
If Innovation Qizhi does not retain existing customers or attract new customers, the expectation of revenue growth will be greatly reduced.
5. Gross profit margin is cut off and profitability is difficult
Although Innovation Qizhi has achieved doubled growth in revenue, the gross profit margin is almost waist-cutting, ranking at the bottom of the same industry.
As can be seen from the gross margin given in the prospectus, the gross margin decreased from 62.9% in 2018 to 30.9% in 2021.
The products and services provided by Innovation Qizhi include software and hardware, usually, the gross profit margin of software is higher, easy to standardize, and the later maintenance cost is low; while the hardware is usually heavy assets, cash flow is not good, gross profit margin is low, and most of them are order-based, no continuity.
It can also be seen from the company's gross profit margin breakdown by service that the gross profit margin of pure data solution services is higher than 70% in addition to 60% in 2019. Therefore, it can be concluded that the hardware accounted for a high proportion of the products and services provided by Innovation Qizhi.
Although the specific types and proportions of products and services are not specified in the prospectus, the procurement data seems to confirm this very well.
As can be seen in the details of the five major suppliers in 2018, the total purchase of equipment accounted for about 24%, but from 2019, the proportion of total purchases of equipment and hardware components began to increase significantly, exceeding 50% of the total purchase. This corresponds to the gross profit margin in 2018 or 62.9%, and by 2019 it will be cut to about 30%.
In terms of the types of products and services provided by the company, the proportion of software in companies such as Innovation Qizhi and SenseTime is high, and the proportion of hardware is the opposite, and ultimately leads to a gross profit margin that is much lower than that of peers.
The low gross profit margin will directly affect the profitability of the company. According to the prospectus, the losses of Chuangxin Qizhi from 2018 to September 30, 2021 were 71 million yuan, 248 million yuan, 361 million yuan and 438 million yuan, respectively.
Although losses have become the consensus of the industry, the difficulty of making profits is still a problem that AI companies have to face.
In any case, Innovation Qizhi is now only one foot away from going public, and with senseTime's successful listing, market funds will no longer be anxious about the pricing and prospects of AI companies. So, is the innovative intelligence once again popular with capital?
Is it still worth chasing?
Innovative Qizhi and senseTime, which has just been launched, belong to the same AI track, so you can compare it.
Innovation Qizhi has concluded the IPO subscription on the 20th of this month, and the final financing subscription multiple is 8.37 times, which is higher than the previous 5.18 times financing subscription multiple of SenseTime. Although there are differences in the amount of fundraising, it also shows that the market is still hot for AI companies.
On the cornerstone investors, there are only two innovative Qizhi, led by a private equity institution, it is reported that Innovative Qizhi is its second cornerstone stock, while the other is the old shareholder SoftBank, and the combined proportion of the two cornerstones is less than 20%. The number and proportion of cornerstone investors can sometimes reflect the company's popularity with institutions to some extent.
From the current scattered market pattern, there has not yet been a competitor with an absolute scale advantage, then, at this stage, the competition is still technical capabilities, that is to say, research and development capabilities are still the core competitiveness of AI companies.
In terms of R&D investment, from 2018 to the first three quarters of 2021, R&D expenditure was 0.28 billion yuan, 113 million yuan, 181 million yuan and 177 million yuan, accounting for 77%, 49%, 39% and 32% of the total revenue, respectively.
The R&D expenses of SenseTime, Fourth Paradigm, Yitu and Megvii all account for more than 60%, of which SenseTime's R&D accounted for 71.2% in 2020. Innovation Qizhi is obviously not high in R&D investment, and the proportion of R&D expenses is decreasing year by year.
In terms of R&D configuration, the number of innovative R&D personnel accounts for about 50%, which is comparable to the industry level, but the company is small, currently only about 200 people, and the industry leader SenseTime has more than 3,000 people.
From the perspective of revenue, Innovation Qizhi is not only lower than SenseTime, but also far below the industry average, fortunately, due to its small scale, it has performed well in the long growth rate of revenue.
At present, the valuation of 15 billion yuan is not expensive compared to the valuation of about 230 billion yuan of SenseTime, less than one-tenth of SenseTime, but the scale of revenue is far from the same, and there is a big gap in research and development investment, not to mention that SenseTime still has a background of state-owned assets.
However, as mentioned above, SenseTime's good performance after the listing will make market funds no longer anxious about the pricing and prospects of AI companies, and the heat brought by SenseTime is bound to have a positive impact on companies on the same track. At the same time, behind the innovation of Qizhi, there is also the endorsement of Kai-Fu Lee, a big man in the artificial intelligence industry, which is also a major highlight.
In addition, once the company is listed, it will become the first stock in ai+ manufacturing, although the market share is scattered, but it will still form a certain head advantage before other AI companies.
Write at the end
It has been less than 4 years from the establishment of Innovation Qizhi in 2018 to the listing, and with the rapid growth of the AI market, Innovation Qizhi has also achieved rapid growth in revenue.
However, it is clear that its business model has not yet been fixed, and it has gradually tilted from selling software and services to selling hardware, which has directly led to a sharp decline in gross profit margin.
At the same time, the fierce market competition coupled with the subcontracted market model makes it in a relatively weak position in the industrial chain, and the lack of business continuity also lays hidden dangers for the growth of revenue.
However, none of this seems to have affected the market's enthusiasm for innovative Chizhi, and it has to be said that the listing of SenseTime has indeed made a good start.
Although they are on the same track, there are still many uncertainties. If SenseTime can continue the current good trend, the listing performance of Innovative Qizhi may be worth looking forward to.